Let's talk a little bit about housing and essentially the scam that's potentially being set up for home buyers right now. and it's important to pay attention to. at least in the opinion of a Bloomberg writer who says home buyers today are being told a lie now. I'm going to give my opinion on this, but let's go ahead and start with this: Bloomberg journalist Opinion: First, the Bloomberg journalist starts off by saying that Realtors or people in the real estate industry today are telling their clients, you should marry the house and date the rate that is.

Don't be afraid to commit to a house today. You could always refinance when raids come down. That is the argument that this Bloomberg writer suggests people in the real estate industry are telling their clients now I Hate to say it, but I Personally find that eerily similar to what happened in 2006 and seven that don't worry. as long as you can afford the payment for the next year, you could always just refinance at a low lower rate.

I Personally think that is a very dangerous argument to make. You should not buy a property with the assumption that you could ever refinance it. That is very risky advice and as a personal financial advisor hashtag not personalize Financial advice for you I Would be very hard-pressed to find that okay for anyone. Now the Bloomberg article.

Uh, and the journalists go on to say that exactly this might be bad advice because even though you think you might be dating the rate, you might find out that you're in a long-term relationship with rates in the last 10 years, rates averaged in at 3.78 for a typical 30-year fixed rate mortgage. However, this Bloomberg article or journalist goes on to say that generally people say it makes sense to refinance only after rates have dropped one to one and a half percent. This is despite the industry saying to people that hey, you could refinance after rates even just drop half of a percent. Now, the Bloomberg article author didn't write it, write this particular part.

But I think it's worth remembering that when people say you can refinance, it's not as simple as just snapping your fingers and saying boom, I'm going to refinance to capture a lower rate. As a former licensed lender and still a licensed real estate broker who's done hundreds to thousands of transactions probably at this point, it's important to remember that every time you go to refinance, you have to get a new appraisal. You have to pay for escrow. Again, you have to pay for title again.

And that's actually really important because not only do you have to pay the loan costs of whatever loan you're getting, the loan fees, which are generally called discount points for your loan. You could pay points to get a lower rate, or you could take negative points to potentially take a higher rate. which sometimes that makes sense the shorter time frame that you have a loan for. Generally, the more negative points you want to take the longer time frame, the generally the more you want to buy down a rate.

Typically, it doesn't make sense to buy down a rate unless you're holding a loan for more than seven years. The reality is, most people probably won't hold their loan for seven years. But remember the costs that you have to go through. If you want a new loan, you have to pay for escrow title Again, you have to pay those loan fees again.

And most importantly, you have to pay for that appraisal again. And since most first-time home buyers put down a median down payment of just seven percent, and most home buyers who are not first time home buyers, so second, third, fourth, home buyers put down just 13, it's really important to remember that if you put five percent down and then you want to go refinance with a new five percent down loan, but home values fell five percent, then technically you have zero equity. Now, you might not necessarily think that home values have come down five percent, but it's actually not up to you. When you're refinancing your home, it's up to a third party chosen appraiser, And if that third party appraiser is convinced that homes are on a downtrend, they might want to minimize their own liability in appraising properties, being more conservative, therefore, on valuations.

Meaning, even though you bought a place with five percent down, you might not be able to get a refinance appraisal. to say you even have any equity in your home Now anecdotally in this anecdotally means from my experience I Find that refinance appraisals almost always come in lower than purchase appraisals. That's because with a purchase, there seems to be this industry push towards getting people into homes, whereas in a refinance, it comes across as a little bit more of like, well, you just want a lower payment or oh well, you just want cash out of your property And so appraisers tend to be even a little bit more fine-tooth on refinance appraisals. So I actually really agree with this Bloomberg Opinion writer who suggests be careful about thinking you could just refinance in the future, because not only are you going to have to pay a lot of fees to refinance in the future again, escrow, title, appraisal, loan fees.

but it also means you're going to be facing tougher appraisals. So those are two reasons right there: not to bet on your ability to refinance. so fees tougher appraisals. But number three: remember, if home values go down, you're screwed.

So if you were planning on refinancing, right, you put five percent down and you think you're gonna get another five percent down loan. Well, if home values fall even just one percent, you gotta come out of pocket to pay more money towards the value of your home to try to refinance. If you put twenty percent down and home values fell five percent you'd have to come up with another five percent in cash, which could be 25 Grand on a 500 Grand property plus the fees just to be able to refinance. That's wild.

That's not ideal. And since mortgage rates so far have been bouncing around pretty high levels, you gotta ask yourself, what is the likelihood of mortgage rates falling anytime soon? Well, the expectation is that hey, mortgage rates will obviously plummet as soon as inflation is conquered. But wait a minute. How close are we to actually feeling like we're definitely seeing inflation get conquered? Well, here's a chart of mortgage rates.

This chart of mortgage rate shows you that we're not convinced. Obviously, we had a decline in mortgage rates towards the end of 2022 that actually led to some temporary pickup in real estate pricing. You look and talk to a lot of real estate agents today. They'll tell you hey, January Seemed like it was a lot busier than, uh, than December or November.

Well, yeah, because rage rates plummeted. They fell to almost under below under five percent. We could just zoom in over here. they fell almost under five percent.

Whereas the level where we're sitting right now uh, is closer to this level actually probably seven percent is probably somewhere right around here. That's probably right around that seven percent level. Let's draw that straight. It's probably right there if we try to get the midpoint between eight and six over here.

So we went over seven percent and now we're knocking on the door of seven percent again. So the idea that for sure rates are going to be lower is another mistake. So now you've got a few things if you're betting on refinancing. if you're buying a property right now.

uh, number one: fees, number two, harder refinances, number three, rates may not come down, and number four, uh, you might actually see property values continue to Trend down. And in my opinion, that's likely until we are convinced that the fear of real estate is behind us. Consider, for example, when we go over to the Redfin data center, we've talked about this before, but it's worth looking at some of the latest data. So if we go to the Redfin data center, we can kind of see what's going on with median prices in various different counties and also Nationwide Now, it's very important to remember that the big argument that real estate is going to maintain.

You know its value right now. The biggest argument right now is that uh oh well. there's so little inventory. Let me strike that.

oh, I got two of me on screen here. Let me strike that really quick. First, it's very difficult at the fir in the first week of March to talk about how little inventory there is, because there's a phenomenon that happens in real estate that most listings expire at the end of the year. So December 31st is when most listings expire.

Most listings go on the market Springtime generally around March to May So the inventory surge is what we're just now walking into and the Redfin data center just updated their pricing on a four week rolling basis for the nation, it's actually ticking lower again. Look at this folks. let's zoom in over here. So what do we have? We have a one percent increase year over year in pricing at the beginning of the year and even if this just stayed flat, we've talked about this a million times before, even if we just stayed flat at 3 45, let's say we stayed flat at 3 45.

when we get to Peak fear which would be somewhere around uh, what is this level over here? this is going to be June We're not actually going to get that data probably until like August because it all lags. But anyway, look at this. You compare 388 pricing to 345 345 divided by 388. You're looking at an 11 Nationwide decline in real estate pricing assuming real estate stays flat and real estate actually started ticking up again here very briefly because rates fell.

uh-oh but what's happening now? it's actually taking down. Oh see. now if real estate actually continues to Trend down as we compare to this hump over here, we could potentially be looking at 15 to 20 percent price declines Nationwide Now that is Nationwide There are certain areas that are doing quite well Tampa Miami or Miami Probably Miami is just killing it. Miami is so far the only place that I've noticed that actually seems to be positive above the peak of last year and that has potentially explained Away by migration.

but Nationwide If we look at areas that were pretty hot like Austin Texas or Phoenix, look at that. we're trending down much like the nation is trending down. Let's go to let's try San Diego California Uh, trying to catch up a little bit so a little bit mixed over here I Encourage you to use this to to look at uh, your own particular area. look at Boise trending down substantially lower than where we are from Peak 547 down to 438, right? I mean look at that 438 divided by 547.

you're at 20 of a decline so you're seeing different Trends in different areas of the country Atlanta I believe is actually doing pretty well. Uh, a lot of the South uh, let's write it correctly. a lot of the South has been doing very well. See, look at that.

You've got a little bit of an uptrend trying to start here. We'll see if that maintains because rates are increasing again and that could actually drive even Miami and Atlanta down. But most markets as a whole, when we just look at Nationwide we zoom out Nationwide we can see the Nationwide trend is down for 2023. Continuing the downtrend that we saw the second half of 2022..

And so that's not exactly the best case scenario if somebody's speculating on real estate solely trending up. In fact, Redfin indicates that right now. U.S Home prices are dropping year over year for the first time since 2012. And that's probably because we are at the lowest level of home affordability that we have seen since the great real estate crash of 2008.

Since basically the housing bubble. the only thing keeping the market up right now is inventory and so if we click on the new listings tab right here so far, we're not seeing a surge of new inventory above previous. Trend If anything, inventory is staying stable or below. Trend I Should say now one of the reasons for that, or because people have locked in their lower interest rates, right? So they're less motivated to sell and they're more likely to rent than give up their lower interest rates and sell.

Especially since they're more likely to stay in place or remodel than go buy something else and spend a fortune on a mortgage rate that could be twice as high. If you've locked in a 2.8 mortgage rate, why would you go to a seven percent now? So really, what you're waiting for is potentially that spring surge of inventory and maybe institutional liquidations. For example, I was just in, where was I was just in Colorado I was just in Aurora Colorado and I saw multiple listings By Invitation Homes a showing that Invitational Homes is trying to start liquidating some of their portfolio in certain areas. That's because a lot of real estate investment trusts like Invitation Homes are starting to see Redemption requests specifically like KKR uh Blackstone A lot of large companies uh, that that own residential real estate are facing liquidation requests and that potentially means these companies have to dump their real estate and maybe we'll see an increase in inventory.

So the worst case scenario for Real Estate would be real estate prices stay flat right now, rates stay high and eventually fear and more inventory drives prices down more. That's the worst case scenario. Certain areas are doing better than others, but that's the way the real estate market. Works In fact, people like to say all real estate is local, so you could use things like the Redfin data center to see how real estate is doing in your area.

But most importantly, it does seem like for an individual, there probably are going to be opportunities to take advantage of this real estate market. That's why I have a real estate startup called House Hack, which you can learn more about at Househack.com But if you really want to educate yourself on real estate, I encourage checking out via the links down below the zero to millionaire real estate investing course which really shows you the path of how to best purchase real estate in my opinion, to make the most wealth in the fastest way possible. getting below market value deals in real estate Uh, single families, multi-family property management rules that you should follow, how to hire the best agents and property managers. All of that Consolidated into one place.

Check those out via the links down below. But is it possible that real estate ends up flip-flopping and just recovering from here? Sure, if inventory stays low and we end up in an environment where maybe we are beating inflation and maybe the Federal Reserve can soften their aggressiveness on real estate yeah, on mortgage rates, then absolutely absolutely. It's possible the real estate market ends the year positive rather than negative. so we'll have to pay attention both to our local real estate market and the Federal Reserve to know exactly which way things are going.

We'll.